If you’ve ever been shopping for a new car, you may have been offered GAP—Guaranteed Asset Protection—insurance before heading out the door, and we think you would have been right to pause and think about it for a second. We want to go over what GAP insurance is and why you should think twice before buying it from a dealership.
What Is GAP Insurance?
Imagine you get into an accident that totals your new car less than a day after driving it off the lot. Cars depreciate immediately once they are no longer called “new,” and the value of your car would be less than the value of the loan you took out to buy it. This is where GAP insurance comes in; it takes care of that difference and takes you off the hook for anything owed on the loan that isn’t covered by collision insurance.
It sounds like a pretty good deal, right? Even if you pay a $1,000 premium when you buy the vehicle, that will still bring quite a bit of savings if you need to use GAP insurance. But that’s where the problem comes in: Most people don’t end up using their GAP insurance.
How Much Should You Pay for GAP Insurance?
Many dealers add on GAP insurance toward the end because they know it’s a smart investment for them. They make the offer, pocket the cash, and occasionally have to pay out for the insurance. While this is how all insurance works, purchasing GAP insurance through an insurance company instead of through a dealership can be much more affordable. Many dealerships also incentivize adding GAP insurance onto a sale, meaning that the sales team member might have an ulterior motive beyond helping to protect your investment.
Should I Buy GAP Insurance?
In the end, the decision to buy GAP insurance is up to you. It’s not a scam in the way that some auto scams simply take money from a car buyer without giving them anything in return, but you can usually find a better deal than you would at a dealership. If you want the peace of mind that comes with knowing your loan will be paid off even if your car gets totaled, then shop around for GAP insurance, don’t just buy it with the car.
For more helpful tips on car buying, car ownership, and car maintenance, be sure to bookmark our blog here at Honest Car Dealer.
May 2, 2016 by Jamie Rettig